Spain keeps a pulse on economic activity as Europe moves toward recession

Spain keeps a pulse on economic activity as Europe moves toward recession

BarcelonaThe Spanish economy remains strong in a European context that has become more complex. Private sector economic activity (households and businesses, excluding public administrations) in the euro area saw seven months of contraction in December, according to the Composite Purchasing Managers' Index (PMI). However, Spain was one of the only two countries where private sector activity expanded.

The Purchasing Managers' Index (PMI), produced by consulting firm Markit, is one of the benchmark indicators for understanding the development of the economy. The Purchasing Managers' Index, which measures private sector activity, reached 47.6 points last month, the same number as in November. If the index is above 50, it means that activity is growing, and if it is below that, it means that it is declining. Therefore, private sector activity in the euro area is in contraction.

If the index is divided into the services sector and the manufacturing sector, the data for December amount to 48.8 and 48.7 points, respectively, although the numbers are better than those recorded in November, as in both cases they were less than 45 points. The conclusion is therefore that both industry and services are suffering from declining activity across the countries sharing the euro.

Depending on the country, the poor health situation in the Eurozone translates into weak private sector PMI data in the major economies of the Old Continent. Germany, France and Italy, the three largest countries, ended December with 47.4 points, 44.8 points and 48.6 points respectively, so all three were below the 50 points that indicate “expanding activity.” Conversely, Spain – the fourth economy in the eurozone – remains the country with the best private sector activity, with its December PMI at 50.4 points, surpassed only by Ireland with 51.5 points.

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Recession has been avoided for now

The data is not surprising. Since the beginning of the Russian invasion of Ukraine and the energy and inflation crises that followed, the eurozone has been close to economic decline on several occasions, but data officials from Eurostat – the European statistical agency – show that it has not yet recorded two consecutive quarters of decline in GDP. (Gross Domestic Product, the indicator that measures the size of the economy), which is the standard by which a country enters a recession.

In fact, the eurozone economy closed the third quarter of last year (the most recent according to available data) with… down 0.1%, but he had previously pegged the previous two quarters with a slight increase of 0.1%. In 2022, the rate was also negative in the fourth quarter, but GDP grew in the rest of the year.

The December PMI points to the same shortcomings that have emerged in recent months. Specifically, the index reveals a decline in export orders across Europe and a general weakness in demand. In addition, although there was a slowdown in rising business costs, many companies continued to increase prices, which had a negative impact on sales.

The picture at the end of the year is therefore similar to what the European economy has been facing since the end of the pandemic. With the reopening of the economy, the year 2021 was characterized by bottlenecks and shortages in many sectors, especially industrial ones, such as Lack of microchipsThis led to a slowdown in automobile production.

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This shortage of products has already led to an initial price escalation, which was exacerbated in Europe by the Russian attack on Ukraine, which caused a sudden increase in the costs of oil and natural gas, and thus electricity and fuel. In addition, raw materials such as fertilizers or some minerals coming from Russia or Ukraine are becoming more expensive. The high cost of living forced many European families to reduce expenses, with a negative impact on the economy.

To combat inflation, the European Central Bank raised interest rates with the aim of making it more difficult for households and businesses to obtain credit, which means lower consumption and investment, both businesses and households, who see how difficult it is to apply for a mortgage. Much more expensive than a few years ago. These factors have slowed the economy.

But in Spain's case, the economy has resisted better than the rest of the continent thanks to strong tourism, lower dependence on Russian energy – which has moderated inflation – and measures such as a cap on gas and other public services. Policies to mitigate the effects of the price crisis.

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